The man who brought organics to Main Street
Whole Foods CEO John Mackey tells Fortune's Matthew Boyle he's looking for new ways to please Wall Street - and steer clear of the FTC.
(Fortune Magazine) -- Whole Foods' (Charts, Fortune 500) $5.6 billion in sales make it the largest purveyor of organic and natural food. Its planned acquisition of Wild Oats (Charts) would make it even bigger, but the government wants to halt the deal. The 53-year-old founder and CEO answers your questions about the merger as well as some from Fortune's Matthew Boyle.
Do you feel singled out by the [Federal Trade Commission's] attempt to block the Wild Oats merger? - Name withheld, Orlando
Look at the track record of the Federal Trade Commission [FTC] in the last six years. They have approved 96 oil and gas mergers. They approved Smithfield buying the No. 2 pork producer, giving them around 30% market share in the U.S. [In 1999] they approved Exxon and Mobil merging. It's ludicrous to single [us] out for anticompetitive reasons. [The rules] are obviously being selectively enforced.
Has the conflict made you disillusioned about the grocery business or business in general? - William Hong, Berkeley
No. Whole Foods will try to avoid tangling with the FTC ever again in the future. It's ironic: You can open as many stores as you want without permission from the FTC, but if you try to buy stores, that requires permission. The solution is obvious: We won't be buying stores, we'll be opening them. You don't see Wal-Mart (Charts, Fortune 500) acquiring anyone in the U.S. anymore. It's easier for them and us to just open stores.
If the Wild Oats acquisition succeeds, what impact will it have on your prices? - Rian Jurvick, Virginia Beach
It will have a positive impact on Wild Oats prices, because we will lower prices there. It will not have much of an impact on our prices, because we have already announced we will sell off farmers' markets like Sun Harvest and Henry's and close down some redundant stores. We will get $700 million of sales out of Wild Oats, but that is only 10% of the combined company. So it will not give us a huge increase in our purchasing scale. It shouldn't do anything to our prices. Our prices are more constrained by [rival upscale grocers] H-E-B and Wegmans. That's who we price against.
With organic foods gaining popularity among the masses, are there any plans to expand Whole Foods to smaller cities? - Mark Lee, Rogers, Ariz.
We are in a number of small cities and towns. Great examples would be Santa Fe, Boulder, and Winston-Salem. There you have to tailor your store to the market. We do not have a prototype store that we roll out. We are more like custom-home builders. In London we've got an organic pub where you can get organic draft beer and wines. But many of the innovations we introduce are in small stores. If they work, they end up spreading.
We're going to continue to try to compete with them in terms of better service, quality, and larger selection. We're innovating on the product side: We have a commitment to ethically traded products. We're upgrading our animal-welfare program, and in London we've introduced our five-step animal-welfare process. It's coming to the U.S. soon. We'll rate all our animal producers in terms of their welfare standards from one to five. We'll have that on the packaging or the case. Much of the meat sold in conventional supermarkets wouldn't meet our No. 1 standard. Producers will want to know what they can do to get their rating from a 2 to a 3. Competitiveness solves that problem.
Have you thought of a scaled-down format that offers the same high quality, but in a less lavish and smaller store? - Rick Ferlito, San Diego
We have thought about that, and it's very likely we will experiment in that direction over the next year. I don't want to say how it would look, though. It is still in the planning stages.
What demographic and other factors do you consider when deciding where to expand? - Corbin See, Oklahoma City
The most important thing is the density of college grads, which is why we do so well in New York City. That's a better indicator for us than income. Everyone thinks we cater to the rich, but it's really not true. We cater to the well-educated. The reason is that for people to change their dietary habits requires that they be well informed.
There's a growing trend among your core customers to prefer locally produced food over organically produced food. What are you doing to address this change in consumer demand? - Shamsuddin Syed, Bloomfield Hills, Mich.
We're doing quite a bit there. We've tripled our supply of local food in the past year. We've also begun loaning up to $10 million a year to help local producers. We've made 13 loans so far.
Fortune's Matthew Boyle asks
We've heard that some people go after real estate in neighborhoods where a Whole Foods is slated to open. Have you studied your impact on the real estate market?
We haven't commissioned any studies, but I understand that when we opened in Chelsea [in New York City], condos above the store went up 10% in price on the first day. I can look out my window in Austin, where we have our flagship store, and people are building condos all around. The joke is that we could have made a lot more money just buying up real estate around our stores and developing it than we could make selling groceries. That's one reason we have a lot of landlords aggressively [trying] to get us in as tenants. In Miami and Sarasota, for example, we will have condos built nearby as part of a mixed-use project.
It's rare for a CEO's blog to make news, but yours has during this Federal Trade Commission flap. Some say your words could be used against you. Do you feel that this is the proper role for a CEO's blog?
I don't like that question. I don't want to say what the proper role for a CEO's blog is. We want to communicate as honestly as we can. I am talking about the things I most care about. I don't do what other bloggers do. I don't post all the time. The great thing about blogging is that I don't need you journalists to interpret me anymore.
From the July 23, 2007 issue